FINDING

MONEY
and
MOTIVATION
FOR CHANGE
 The fallacy of averages
•Burden as a percentage of
•Material
•Labor
•Cost of Goods sold as a percentage of
Sales

With one foot in boiling water and one

foot in freezing water, on average …….
Outrunning the Bear
STRATEGIC VS. TACTICAL
ELEMENTS OF
ENTERISE LAUNCH
OR
PROCESS IMPROVEMENT
 STRATEGIC ELEMENTS
S W O T
INDENTIFY AND DOCUMENT THE DESIRED OUTCOME

DEFINE AND DELINEATE THE FIELD OF ENGAGEMENT

DEFINE AND ENFORCE THE RULES OF ENGAGEMENT

DEFINE DIVISIONS OF LABOR AND SPAN OF CONTROL

DEFINE AND ACQUIRE THE SKILL SETS

DEFINE AND ACQUIRE COMPETIVE WEAPONRY

EXECUTE EXECUTE EXECUTE

 TACTICAL ELEMENTS
PERFORMANCE STANDARDS

SKILLS KNOWLEDGE ATTITUDE

PLAN AND EXECUTE

MANAGE CHANGE

AFTER ACTION (BODY COUNTS)

PRACTICE PRACTICE PRACTICE

SHOW ME
THE
 ON THE MORNING OF MM/DD/YYYY OUR WORLD WILL LOOK
LIKE THIS:

• IMPROVEMENTS REFLECT IN FINANCIAL PERFORMANCE

AND

• IMPROVEMENTS RESULT IN SUSTAINABLE COMPETITIVE

ADVANTAGE
 HURDLE RATE
The required rate of return in a discounted cash flow
analysis, above which an investment makes sense
and below which it does not.
Based on

The cost of capital

OR
The weighted average cost of capital

Plus or minus a risk premium to reflect the project's

specific risk characteristics. also called required rate
of return and return on investment (ROI).
AND WHAT SHOULD THE NUMBER BE?
 General Terms

Risk Minimum Acceptable

Project Category
Class Rate of Return

1 Cost Savings 15% to 19%

2 Revenue Expansion 20% to 25%
3 Research/Development 26% to Above
 COST OF CAPITAL ELEMENTS

FACTOR VALUE
ANTICIPATED BORROWING COST E.G. DEBT COST 10%
TAX RATE 40%
PERCENT OF TOTAL FINANCING FROM DEBT 30%
WEIGHTED DEBT FINANCING 1.8%

ANTICIPATED RETURN ON EQUITY( BALANCE SHEET

HISTORY) 15%
PERCENT OF TOTAL FINANCING FROM EQUITY 70%
WEIGHTED DEBT FINANCING 10.50%
 YEAR YEAR YEAR YEAR
ONE TWO THREE FOUR

ACCOUNT BALANCE $ 10,000 $ 2,250 $ 6,750 $ 11,250 $ 15,750

IMPROVEMENT INVESTMENT $ 10,000

DURATION OF IMPROVEMENT INDEFINITE-------------------------------------------~

ANNUAL IMPROVEMENT $ 4,500 $ 4,500 $ 4,500 $ 4,500

But is that all there is?
Does a dollar at some point in
the future have the same value
as a dollar today?
How much less is the value of a dollar in the
future ?
Considering: Time and Risk

1 n
P=F ───────
n (1 + i)

P = Present value
F = Future cash inflow in time period n
i = Discount rate
n = number of years
 PRESENT VALUE DISCOUNT TABLE

Years
18% 20% 22% 24% 25% 26%
1 0.848 0.833 0.82 0.807 0.8 0.794
2 0.718 0.694 0.672 0.65 0.64 0.63
3 0.609 0.579 0.551 0.525 0.512 0.5
4 0.516 0.482 0.451 0.423 0.41 0.397
5 0.437 0.402 0.37 0.341 0.328 0.315
 YEAR YEAR YEAR YEAR
ONE TWO THREE FOUR

ACCOUNT BALANCE IN
CURRENT $’S $ 10,000 $ 3,500 $ 10,500 $ 17,500 $ 24,500

ACCOUNT BALANCE IN $ 10,000 $ 2,778 $ 7,187 $ 10,870 $ 13,464

DISCOUNTED $’S

IMPROVEMENT INVESTMENT $ 10,000

DURATION OF IMPROVEMENT INDEFINITE-------------------------------------------~

ANNUAL IMPROVEMENT $ 7,000 $ 7,000 $ 7,000 $ 7,000

26% HURDLE RATE 0.7937 0.6299 0.4999 0.3968

DISCOUNTED IMPROVEMENT $ 5,566 $4,409 $ 3,499 $ 2,778

 THE QUESTION:

At the end of four years would you rather have….

The process and the MONEY

improvement
OR

No process and no MONEY

improvement